Fed Extends, Increases Reverse Repo Test Program

The Federal Reserve has extended and increased the size of an experimental lending facility it hopes may eventually replace the federal funds rate as the primary benchmark for U.S. borrowing costs.

The central bank emphasized that the tests didn’t represent a change in the stance of monetary policy but were rather a part of “prudent advance planning” for an eventual tightening of interest rate policy.

The daily allotment for the so-called reverse repurchase agreements was increased to $5 billion from $3 billion.

“It is expected that, over the coming months, the maximum allotment cap may be increased further,” the Fed said.

The Fed on Wednesday said it would further reduce the pace of its bond buys by $10 billion to $65 billion per month.

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